Legacy Market Session September 2006 Market: James Andlaw (Zurich), Richard Borgonon (JLT), Peter Goddard (BRIT), John Muir (Willis) Xchanging: Rob Myers MRPO: John Harvie, Steve Hulm

Market Reform Page 2 Agenda IntroductionJohn Harvie Legacy Code of Practice & GuidanceSteve Hulm Broker ApproachRichard Borgonon/ John Muir SummaryJohn Harvie Frequently Asked QuestionsPanel Open QuestionsPanel

Market Reform Page 3 Legacy Status Legacy Statistics –Unsigned Policy Reports (UPR) provide a basis –You may well have your own data FSA Interest –They have a close interest in the subject –They are likely to focus on the UPR numbers & on your progress Market Guidance –Legacy Code of Practice & Guidance published Tools Available (from Xchanging) –Legacy Unsigned Policy Reports –Legacy “Purging” Facility Change Requests being progressed –Removal of items with alternative evidence of cover from UPR Now is the time for action!

Legacy Code of Practice

Market Reform Page 5 Legacy Policies Background Initially not seen as the main priority by some in the market MRG with encouragement from the FSA, wanted to see if there was any value in some central activity Instigated a study to find out more –Questionnaire –Consultation with a small number of Brokers and Underwriters –Categorisation of Legacy into priority Formation of Legacy Policy Group

Market Reform Page 6 Legacy Policies Legacy Policy Group –Confirmed and refined the priorities for categorising legacy issue –Refined into Code of Practice Code of Practice –Agreed by MRG and associations –Agreed by non-London practitioners group, including ABI, BIBA and IIB –Published on 17 February 2006 with full UK Insurance Market branding

Market Reform Page 7 Legacy Policies Code of Practice Priority 1 - Definition –Business incepting on or after 01/01/05 and any unexpired policies as at 01/01/2005 (current work in progress) Priority 2 - Definition –2004 expired short tail and long tail which expired prior to 2005 (priority legacy policies ) Priority 3 - Definition –Expired 2003 and previous short tail (other legacy items)

Market Reform Page 8 Legacy Policies Guidance - General –G1 - Priority should always be given to meeting a client request for evidence of cover – This is key –G2 - It is for each insurer and broker to determine its own legacy statistics, drawing on a variety of data sources including the bureau records where relevant – “Sizing the problem” –G3 - The broker should determine the requirements of its client for any legacy that is no longer planned for preparation and issuance of appropriate evidence of cover – “Ask the client” –G4 -In absence of any instructions to the contrary brokers should commit to issuing any insurer-approved evidence of cover to its clients – “It doesn’t sit in a drawer!”

Market Reform Page 9 Legacy Policies Priority 1 - Definition –Business incepting on or after 01/01/05 and any unexpired policies as at 01/01/2005 (current work in progress); –The highest priority is to stop adding to the legacy backlog – Comply with the C/C Code of Practice Priority 2 - Definition –2004 expired short tail and long tail which expired prior to 2005 (priority legacy policies); –A decision not to produce an appropriate evidence of cover is the responsibility of the insurer rather than the broker – So the insurer makes the decision. The broker or insurer may initiate the process. –Insurers should assess, among other things, both the intrinsic risk of the contract and the quantum of cover in agreeing priorities for resolution – and makes the risk decision –Particular attention should be paid to any unresolved claims or disputes, and the options for addressing those situations – Reflecting these facts … continued overleaf

Market Reform Page 10 Legacy Policies Priority 2 – (Continued) –Having made these assessments, insurers should agree guidelines with each broker in respect of the characteristics of legacy policies which are not to be issued – Need not be on a case by case basis –Accordingly following insurers are encouraged in this respect to review and seek to accept the guidelines adopted by the leader – The leader should normally make the decision –Legacy policies should be issued where required, even where the underlying slip is of high quality – Client wishes are paramount Priority 3 - Definition –Expired 2003 and previous short tail (other legacy items). –All the above principles remain relevant. –As a general principle priority three policies need not be produced.

Market Reform Page 11 The Broker Approach Approach developed by Willis and JLT independently of each other Discussed with representatives of the Market:- –Aon, Marsh, Benfield –MRG Chairman –LMBC –LMA –Lloyds CEO –Wide range of Lead Insurers (Lloyds and Companies) –At CEO level –FSA – Senior and CC interview team members

Market Reform Page 12 The Broker Approach –Endorsing the Code of Practice….. Accept the Code Mechanisms to address Market Legacy: – I. Insurance Policy (Bureaux or Company) – II. Copy of Complete Slip (Insurer approved Document) – III. Certificate of Insurance – IV. Broker Insurance Document (Broker Prepared Document) Accept and Agree FSA/ MRG Prioritisation: –Priority 1 - Definition –Business incepting on or after 01/01/05 and any unexpired policies as at 01/01/2005 (current work in progress) –Priority 2 - Definition –2004 expired short tail and long tail which expired prior to 2005 (priority legacy policies) –Priority 3 - Definition –Expired 2003 and previous short tail (other legacy items)

Market Reform Page 13 The Brokers approach – A Staged Approach….. Detailed analysis of Data to establish: –Robustness of Market and Broker Core system data –Volumes within each Priority –Lead Insurer/ References Recommend appropriate EoC per Contract: –Per Leading Insurer –Capture Client or Leader instruction at time of placement

Market Reform Page 14 Write to Lead Insurers/ Reinsurers at CEO level –Outline Review process undertaken –Consideration given to lead or Client instruction –Attach bordereau containing –Lead Insurer Reference and Signed line –Recommended EoC per contract –Request approval from CEO to action recommended EoC –Time frame stated for response (4 working weeks) Upon agreement of the above, request Underwriters to purge bureaux data base. The Brokers approach – A Staged Approach…..

Summary, Questions and Close

Market Reform Page 16 Summary Now is the time for action! You need to: –Adopt the Code of Practice –Set up a legacy project –Determine your legacy position (UPR reports + internal data) –Liaise with your counter-parties (primarily: brokers – leaders) –Agree & implement an action plan –Reduce your UPR numbers (FSA will be looking at this)

Market Reform Page 17 Frequently Asked Questions Why do I need to devote resource to this issue? What does the panel think the FSA’s approach to this issue will be? Who should initiate action on legacy? The broker or the leader? Are the Unsigned Policy Reports accurate? What does a follower need to do?

Market Reform Page 18 Open Questions

Legacy Market Session September 2006 Market: James Andlaw (Zurich), Richard Borgonon (JLT), Peter Goddard (BRIT), John Muir (Willis) Xchanging: Rob Myers MRPO: John Harvie, Steve Hulm